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Saturday, January 8, 2011

As the New Year dawns all of us in India are optimistic – the mood is good, the future looks brighter –the MBA placements are doing well – the Engineering placements look still better –companies are hiring and there is a flurry of activity in almost every sphere of economy as we enter 2011.

Like any investor, my investments in 2011 would be based on my predictions and I thought I must share this with others – with a view to help and guide as many people as possible. I tend to be on the conservative side – hence if we do better than these predictions – I am happy. I am going to keep updating on these as we go through the year – and as all of us know, things can change.

So here are my predictions:

·GDP growth would be slightly lower in 2011 than in 2010, and it would be around 8% - well known pundits are predicting 8.5-9% for India. However, I would base my decisions on a conservative 8% growth.

·Interest rates in India are expected to rise in 2011 – Inflationary pressures in the economy due to demand pull and supply demand mismatch, increasing rise in commodity prices globally, increasingly competitive devaluations by developed countries through loose monetary policies will force RBI to hike interest rates and control liquidity in 2011. Hence if you are looking at Fixed Deposits to park your money – the rates should go up as the year progresses. If you are planning to take loans -that too will become dearer as the year progresses especially if it is a large loan like a home loan.

·Indian stock markets –this is a difficult prediction – I believe that this year sensex will not show spectacular returns – in 2010, the sensex rose 17% (from 17460 to 20500) –I think we will not see a better performance in 2011. It could be lower than 17% growth in 2011. Our markets have a trailing PE multiple of around 23 and if it goes beyond this, I believe we are surely in bubble zone. If you want to invest in equities – look hard and look long term –do fundamental research – look at industries like FMCG, healthcare, infrastructure where India’s growth story will reside and in those industries, look at well managed companies and enter only when there is a reasonably low price. If you cannot do fundamental research – look at regular investments through SIP’s in MF’s investing in large caps or the above mentioned sectors.

·Commodities – as per IMF, the world GDP grew at 4.8% last year and it is expected to grow at 4.2% in 2011. The commodity prices of crude, metals, gold are all expected to increase due to increasing consumption in growth economies like India, China, Indonesia and Brazil and due to increased investor appetite to counter weakening of currencies. In India, investment in Gold would not provide very great results due to strengthening of INR w.r.t USD – but it surely would be a good hedge against inflation. You may not get rich by investing in gold this year – but you will surely not get poorer –you will beat inflation by investing in gold. So I recommend that Gold be a part of your portfolio (about 20%) either through the SIP route in Gold ETF’s or through small purchases when the prices are going down.

·Insurance – As my friends and colleagues know, I am not a fan of using insurance as an investment vehicle. However, I do believe in life cover and healthcare cover. With IRDA moving in and proactively regulating more and more, expect the cost of a term loan or a healthcare cover to go up in the years to come. However, I believe that there will be better customer service and better schemes in the years ahead.

·Your savings bank – as of now, your bank gives you 3.5% interest on your money lying idle in the SB account – it is better than before – but it is much below inflation -hence keep as less money as possible in your SB account. Ideally, you must keep about one month’s cash requirement in the SB account – not more.

·Real estate - with real estate markets picking up in 2010, there is currently an oversupply situation in property market in all major urban areas in the country. Hence this sector may not see massive appreciation in 2011 – however, the real estate sector, is a long term investment sector and in this sector, a three year timeline is considered short term – if you have investible surplus with a three year or more timeframe – this is still a good sector to invest – the appreciation can be at least 15% per annum as the India growth story and the massive urbanisation that we are witnessing in India will always push the prices up. However proper due diligence is a must.

Overall, I think 2011 will be an interesting year.

If you want advice on managing your wealth - I would be more than happy to help you out - and this service is absolutly free as I would like to share my learnings with as many people as possible.